Tuesday , 20 February 2018

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Turkish central bank to react, S&P 500 hit record level

Forex News and Events

Turkish central bank should act (by Peter Rosenstreich)

In the wake of the failed military coup in Turkey investors will be focused on today’s central bank MPC meeting. So far markets have reacted in an orderly fashion to unfolding events, yet, short-term risks remain, while longer-term questions will damage outlook and growth. The stability seen in Turkish assets, with 5-year CDS only inching up 20bp to 246 since Friday’s close, is indicative of a risk-on environment, rather than faith in Turkish resiliency. President Erdogan is expected to use these events to tighten his political grip.

Lingering political and social uncertainly is likely to result in a deterioration of economic fundamentals and threaten investment grade sovereign ratings. This comes at a time when Europe, Turkey’s largest trading partner and primary source of tourism, is stifled by stagnation and Brexit repercussions.

Given this backdrop we anticipate a deeper than consensus central bank action as policy makers attempt to get ahead of the curve (despite anxieties over renascent inflation pressure). We expect the CBT to ease the O/N lending rate 50bp to 8.5% (consensus 25bp to 8.75%), while keeping the benchmark and O/N borrowing unchanged at 7.50% & 7.25% respectively. The move is unlikely to have a lasting impact on USDTRY trading on the 2.9800 handle. In the longer term, TRY looks significantly vulnerable, especially in the event that President Erdogan prolong tensions. Foreign currency loans remain a significant part of the banks’ balance sheet so further weakness could prompt funding concerns. Given the current environment, TRY is likely to underperform any EM rally, while investors will likely cut TRY positions quickly in a risk-off scenario.

US Stocks: Is the sky the limit? (by Yann Quelenn)

The S&P 500 is trading at a record high, closing at 2166.89 points on Monday. While global uncertainties are important, it appears that US stocks may be overvalued. We remain cautious on the true assessment of the US economy. In fact we believe that US fundamentals are overestimated (in particular labour data). In other words, a stronger US stock market would clearly mean that the American economy is expanding. We are skeptical of this.

Our view is to look at the unlimited liquidity central banks may be willing to offer. Stock markets are no longer driven by fundamentals but by central bank policymakers and quantitative easing. Earlier last week, Ben Bernanke’s visit to Japan and rumours of BoJ helicopter money pushed the Nikkei higher, around 8% in three sessions, even though we know that Japan is struggling for sustainable economic expansion and fighting against deflation.

There is, and we have been saying this for some time, absolutely no monetary policy divergence. Investors understand that rates will remain low for some time. According to Fed Fund Futures, a US rate cut before the end of 2017 is now possible – yes, even if right now the probability seems extremely small. As we have written several times, the path to US rate hike is largely overestimated and should continue to underpin the stock market.

It is also true that the current S&P 500 P/E ratio (Share/ Earnings – incl. dividends) is not at its 2009 level. It is around 25. We recall that this indicator being way higher in 2009 at 123.73. Most earnings for Q2 declined and we should see the P/E ratio increasing again.

There is no reason why US stocks would decline right now as easing should continue. 2200 on the S&P 500 represents therefore a decent target on the 1-2 month term horizon. Yet, a risk off move or panic may trigger a sharp downside move on US stocks. The US election is the new market focus and a QE4 should be expected.

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USD/JPY – Towards Resistance At 106.84. USD/JPY - Towards Resistance At 106.84.

Today’s Key Issues Country / GMT
ECB Bank Lending Survey EUR / 08:00
Jul 15 FIPE CPI – Weekly, exp 0,82%, last 0,78% BRL / 08:00
Jun CPI MoM, exp 0,20%, last 0,20% GBP / 08:30
Jun CPI YoY, exp 0,40%, last 0,30% GBP / 08:30
Jun CPI Core YoY, exp 1,30%, last 1,20% GBP / 08:30
Jun Retail Price Index, exp 262,7, last 262,1 GBP / 08:30
Jun RPI MoM, exp 0,20%, last 0,30% GBP / 08:30
Jun RPI YoY, exp 1,50%, last 1,40% GBP / 08:30
Jun RPI Ex Mort Int.Payments (YoY), exp 1,50%, last 1,50% GBP / 08:30
Jun PPI Input NSA MoM, exp 1,10%, last 2,60% GBP / 08:30
Jun PPI Input NSA YoY, exp -0,80%, last -3,90% GBP / 08:30
Jun PPI Output NSA MoM, exp 0,20%, last 0,10% GBP / 08:30
Jun PPI Output NSA YoY, exp -0,50%, last -0,70% GBP / 08:30
Jun PPI Output Core NSA MoM, exp 0,10%, last 0,00% GBP / 08:30
Jun PPI Output Core NSA YoY, exp 0,60%, last 0,50% GBP / 08:30
May House Price Index YoY, last 8,20% GBP / 08:30
Jul ZEW Survey Current Situation, exp 51,8, last 54,5 EUR / 09:00
Jul ZEW Survey Expectations, exp 9, last 19,2 EUR / 09:00
Jul ZEW Survey Expectations, last 20,2 EUR / 09:00
BOE Indexed Long-Term Repo Operation Results GBP / 09:40
Jul 19 Benchmark Repurchase Rate, exp 7,50%, last 7,50% TRY / 11:00
Jul 19 Overnight Lending Rate, exp 8,75%, last 9,00% TRY / 11:00
Jul 19 Overnight Borrowing Rate, exp 7,25%, last 7,25% TRY / 11:00
Jul IGP-M Inflation 2nd Preview, exp 0,46%, last 1,33% BRL / 11:00
Jun Housing Starts, exp 1166k, last 1164k USD / 12:30
Jun Housing Starts MoM, exp 0,20%, last -0,30% USD / 12:30
Jun Building Permits, exp 1150k, last 1138k, rev 1136k USD / 12:30
Jun Building Permits MoM, exp 1,20%, last 0,70%, rev 0,50% USD / 12:30
Jun Unemployment Rate, exp 5,50%, last 5,60% RUB / 13:00
Jun Real Disposable Income, exp -5,00%, last -5,70% RUB / 13:00
Jun Real Wages YoY, exp -1,00%, last -1,00% RUB / 13:00
Jun Retail Sales Real MoM, exp 0,50%, last 0,80% RUB / 13:00
Jun Retail Sales Real YoY, exp -5,40%, last -6,10% RUB / 13:00
BOE Deputy Governor Ben Broadbent testifies on blockchain GBP / 14:05
Jun Tax Collections, exp 98050m, last 95219m BRL / 22:00
Jun Formal Job Creation Total, exp -56000, last -72615 BRL / 22:00
Jun PPI MoM, exp 1,30%, last 1,00% RUB / 22:00
Jun PPI YoY, exp 3,80%, last 3,20% RUB / 22:00

The Risk Today

Yann Quelenn

EURUSD EUR/USD has exited short-term uptrend channel. Hourly supports are given at 1.1002 (08/07/2016 low) and 1.0913 (06/07/2016 low) while hourly resistance is located at 1.1186 (05/07/2016 high). Stronger resistance is given at 1.1479 (06/05/2016 high). Sharp moves do not have to be ruled out as there are still a lot of uncertainties on asset pricing in the market. Expected to show continued sideways price action. In the longer term, the technical structure favours a very long-term bearish bias as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.

GBPUSD GBP/USD is pausing. Hourly support can be found at 1.3106 (14/07/2016 low). Uncertainties are still important on the market, we absolutely do not rule out further increasing volatility. Expected to monitor again support at 1.3106. Resistance at 1.3534 (29/06/2016 high) looks far. The long-term technical pattern is negative and favours a further decline as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200-day moving average). Key support at 1.3503 (23/01/2009 low) has been broken and the road is wide open for further decline.

USDJPY USD/JPY keeps on pushing higher. Hourly supports are located at 103.91 (13/07/2016 low) and at 100 (06/07/2016 low). Expected to keep increasing towards resistance at 106.84 (23/06/2016 high). We favour a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USDCHF USD/CHF is above 0.9800. The buying pressures seem to prevent the pair to go lower towards hourly support at 0.9764 (14/07/2016 high). Hourly resistance lies at 0.9894 (12/07/2016 high). In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias since last December.

Resistance and Support:

EURUSD
1.1479
1.1428
1.1186
1.1068
1.0913
1.0822
1.0458
GBPUSD
1.5018
1.3981
1.3534
1.3197
1.3106
1.2798
1.1880
USDCHF
1.0328
1.0093
0.9956
0.9828
0.9685
0.9522
0.9444
USDJPY
111.91
107.90
106.84
106.65
103.91
99.020
96.570

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Turkish central bank to react, S&P 500 hit record level Reviewed by on . Forex News and Events Turkish central bank should act (by Peter Rosenstreich) In the wake of the failed military coup in Turkey investors will be focused on tod Forex News and Events Turkish central bank should act (by Peter Rosenstreich) In the wake of the failed military coup in Turkey investors will be focused on tod Rating:
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